Longmont spending $450,000 to finish streets after bank failure

Kiki Wallace, developer of Prospect New Town on the south end of Longmont, shows breaking concrete in the development on Sunday, March 18. (Greg Lindstrom/Times-Call)
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Greg Lindstrom
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LONGMONT -- It starts with 1½ inches of pavement.

For a developer, that's the difference between "almost done" and "done." The last layer on a subdivision's streets. Simple. Easy. Routine.

Until the FDIC seizes your bank, anyway. And then, that inch and a half might as well be a mile.

That's what happened to two Longmont subdivisions last year. Because of it, the city could be spending $450,000 this year to finish the streets in Somerset Meadows and what city staff calls "the Wallace fourth filing," three chunks of land in the Prospect neighborhood. The developers then get the bill.

In a way, it's a sign of the times. The Federal Deposit Insurance Corp. reported 92 bank failures last year, including FirsTier Bank, which held the letters of credit for the two Longmont developments. But knowing it's a national trend doesn't make it any less of a lightning strike when it comes.

"The city said, 'We don't know what to do; this has never happened before,'" said Kiki Wallace, developer of the Wallace fourth filing. "They didn't comprehend what the scope of what was happening was going to be."

It's usually a simple process: A developer in Longmont signs a public improvement agreement, a promise to put in the streets, sidewalks and all the other infrastructure a neighborhood needs. He or she puts up a financial guarantee that the work will get done. And when the city is satisfied that most of it has been, the developer can finish the street surface and turn all the improvements over to the city.

It can take a long time to get to that last inch and a half, known as the "top lift." In fact, it often does. You always save the streets for last, Knirk said, so that you don't wind up repairing them over and over again as the rest of the subdivision gets built out.

Both neighborhoods were approaching that step when the first warning sign came.

"We had it planned for the summer of 2010, and then it became impossible to get a draw out of our bank," Knirk said. "The FDIC said they couldn't lend any more money to any more real estate companies. They had more than they should have had in their portfolio."

The Wallace filing had been moving slowly since 2006 but at the end of 2010 had finally reached a green light to go ahead and finish. Too late. FirsTier was seized in January 2011, and with it, the letters of credit -- the financial guarantee for the developers -- became dead letters.

"We went through the process of making a claim against the FDIC," said Don Burchett, a senior planner for the city. "We said, 'We're demanding payment, or we have no money to guarantee these improvements get done.' The FDIC finally said, 'You have no claim to it, and we're not going to pay you.'"

"I didn't think you could cancel a letter of credit," Knirk said. "It says it's not cancelable. But they did. And we had no way of doing anything about it."

Hitting the street

Both Wallace and Knirk agreed the city treated them well. City officials spent months working with the developers, trying to get some kind of resolution.

But no new guarantee was coming. And the improvements needed to be finished soon. Cracks and damage were already appearing and would only get worse -- and more expensive to fix -- if the wait continued.

"Our staff sat down and said, this spring, if we don't have something in place, we're going to go in and do the work," Burchett said. "Our citizens don't know that those aren't our streets. They assume it's us."

Work is expected to start on the Wallace filing by the end of the month. In April, the work on Somerset Meadows will follow. The city estimates the first will cost $140,000 while the second will run $310,000.

Wallace said there is one consolation. The city got better prices on the finishing work than he could have.

"Accidentally, I came out better, because the city has more purchasing power than I do," he said. "I couldn't have planned it. It's not like they go out planning to save developers money. The circumstances just dictated the situation here."

Once the work is done, both developers have to either pay the bill or have a tax lien attached to their properties come November. Both Wallace and Knirk said it wouldn't go that far.

"The last thing we want to do is stiff the city," Knirk said.

And then everything can be about selling lots and houses again, instead of worrying about another financial ripple.

"It's a wonderful place, and we're trying hard to make it everything everyone wanted it to be," Knirk said. "But never get caught up with the FDIC. Try your best to get out of their way. That's my advice for the day."

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